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PSUs to seek greater operational freedom from Modi government

LiveMint 25-05-2014Utpal Bhaskar

New Delhi: As the Narendra Modi-led National Democratic Alliance coalition assumes office, top state-run companies want to raise the problem of the government’s interference in their functioning with the new political dispensation.

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These firms have been demanding a separation of ownership from management and plan to take up the issue with the prime minister through the department of public enterprises.

With full-time board positions and independent director posts often lying unfilled at state-run companies, politicians have used the situation to dole out largesse and influence operations.

Also, there have been allegations that agencies such as the Central Vigilance Commission and the Central Bureau of Investigation (CBI) have been used to settle scores with such firms that refuse to comply.

“We are preparing ourselves to alert them (the new government) on the issues,” Bharat Heavy Electricals Ltd chairman and managing director B.P. Rao said. “We will seek an opportunity to meet the new prime minister and flag the issues through the department of public enterprises.”

This comes in the backdrop of radical administrative reforms being planned such as the restructuring of Coal India Ltd, the world’s largest coal miner, and restructuring of the government’s administrative ministries. State-owned firms, which employ 1.39 million people, are expected to play a key role in reviving India’s economic growth.

The department of public enterprises, which is the custodian of public sector enterprises, will take up the issue with the new government, according to U.D. Choubey, director-general of the Standing Conference of Public Enterprises, the apex body of state-owned firms.

“We will also take it up with the new prime minister,” Choubey said, adding that the three important issues before the state-controlled companies are an effective board structure, autonomy with accountability of the board and succession planning.

Companies controlled by the central government invested a total of `7.3 trillion, as on 31 March 2012, since their inception, official data shows. This doesn’t include the seven state-run insurance firms. “The issues are known. This is the need of the hour,” said Rao, who also chairs the council on public sector enterprises at the Confederation of Indian Industry (CII) lobby group.

A panel headed by S.K. Roongta, former head of Steel Authority of India Ltd (SAIL), on reforms in central public sector enterprises, had highlighted the issue of so-called over-governance and proposed a fixed tenure for chief executives of companies run by the central government to improve accountability, transparency and efficiency.

“Compliance to summons from various quarters comes at a heavy cost of time and money,” the Roongta panel wrote in its recommendations. “Over-governance, in turn, promotes conservative, cautious and risk- averse organizational culture, with procedures being paramount and outcomes becoming secondary.”

Arguing similarly, Arup Roy Choudhury, chairman and managing director of NTPC Ltd, said, “The government has to first decide whether it should be in the business of doing business. If that is decided, then it must be decided that who is the owner of the business enterprise.”

Once the management has taken a decision in the commercial interest of a state-run firm, there shouldn’t be an overhang of the vigilance commission, the CBI and the Comptroller and Auditor General of India, Roy Choudhury said.

“A decision can lead to profit or loss,” said Roy Choudhury, who heads India’s largest power generation company.

The issue has found resonance across government-owned firms.

Although there are 229 state-owned firms in India, more than 80% of the profits is contributed by the top 10, C.S. Verma, chairman of SAIL, India’s second-largest steel maker, said at a CII conference on 27 March.

“The business of the government is not to do business. There is a lot of interference happening,” Verma had said. “There has to be separation of ownership and management.”